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Nic Lenoir On Visualizing The Gobal Ponzi Scheme: How Does It End?

Tyler Durden's picture


From Nic Lenoir of ICAP

It is not a new theme: asset prices are a function of liquidity expressed in USD. This is the direct result of inflation in USD denominated products having become a pure function of credit creation in our post-2000 world economy where the US has a low enough capacity utilization that wage inflation no longer exists, all commodity prices are expressed in USD, most products are traded in USD, and emerging markets are driven by credit-generated Western demand given the mercantilist nature of their economies. We have spoken on this at length in the past showing the effect on asset prices of the printing press, and conversely the dangers of a strong USD when 2/3 of global liquidity is actually not denominated in USD (this figure is slightly misleading given the fact there are other currencies indexed on the USD but certainly it is close enough to give an order of magnitude). If there are still any doubters just look at the weekly Gold chart since 2001, and then compare it to global aggregated liquidity expressed in USD for the same period. Both charts are using a log scale... enough said.

My entire focus right now is on the commodity complex. The reason why is simply because I believe the post-dotcom economy is completely unsustainable, and this is not only starting to be very much apparent to the general public but also fiscally very expensive to maintain. However, governments are inventing all sorts of accounting trickery, legal vehicles, and running the printing presses overtime in order to preserve the status quo. Maintaining this situation, which is quite the opposite of an equilibrium (consumers don't produce, structural deficits, unfunded liabilities, pegged currencies preventing the markets to rebalance trade etc...), will lead to bubbles and complete mispricing of financial assets. Only when financial markets are taken to extremes that provoke public anger turning into violence will politicians be forced to actually think of the structural issues without having the luxury of hoping that the next one in the seat will be the one facing the task. If bonds sell-off riskier assets will be repriced lowed to reflect higher rates in turn provoking greater demand for bonds. So the most likely culprit for the end game will be commodity prices since nobody will ever complain if stocks rise 400% (a 10% drop is a national emergency). Only when commodity prices are high enough that they put the entire system at risk will we be forced to let nature take its course, companies and governments default, and experience the deflationary shock that we cannot ultimately avoid. This reflection became much more concrete than theoretical when I watched on the news cops dressed as civilians being lynched by the Tunisian mob over the weekend.

This led me to look closer to commodity markets and assess where we stand. First it seems clear to me that Gold is not really the relevant commodity to follow because it is an investment and does not hurt the consumer. Instead I feel the Rogers Commodity Index is a better proxy as it encompasses the broader commodity complex as an asset class. In terms of Elliott Wave consideration we have pretty much a classic 5-leg impulse since last July which means a correction is quite imminent. This by the way is pretty much in line with observations made yesterday that VIX is at levels where risk usually is repriced. I was in favor or reloading DXY longs at 78.80 yesterday. As long as the 61.8% retracement at 77.85 is not bypassed I would stick with the trade, especially given the fact we made money during the last rally in early January given us staying power in the trade. Another way to express this trade would be to sell AUDCAD here as we retested the 50-dma, observing a stop if we bypass 1.0030.

Concurrently this made me rethink my outlook on Fixed Income for the very near term. While I have been an advocate of Bund underperformance, the market seems to be struggling to move lower here. I would close out shorts and even consider a tactical long to play a pull back towards 125.50 before we sell off toward our medium term 121.45 target. I think 10Y US Treasury futures have overall not really traded like they made lows yet since mid-December but I see resistance around 121-25 so I would be rather neutral here after yesterday's sell off as we are in the middle of the range here.

Last but not least even though it is not related, I would also recommend closing the EURCHF / European equities trade we recommended in late December. I added the chart showing the spread between the 1M change in EURCHF and Eurostoxx, both adjusted for their implied volatility. As we can see the gap in the risk aversion shown by the EURCHF pair and the the risk appetite shown by European equities has been filled.

Good luck trading,



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Wed, 01/19/2011 - 13:12 | 887392 Turd Ferguson
Turd Ferguson's picture

I Love Nic but you absolutely MUST watch the USDX VERY CLOSELY over the next few hours:

Wed, 01/19/2011 - 13:16 | 887417 SilverRhino
SilverRhino's picture

Ok, I'll ask ... why???  Are we talking meltdown, meltup, default, etc?

Wed, 01/19/2011 - 14:10 | 887601 French Frog
French Frog's picture

Put a 60 SMA on a Daily $ Index chart with End Of Day (EOD) data and trade in the direction of the close (ie if $ Index closes above the 60 SMA, go long $ and short if it closes below); this has not failed once since May 09;

2 days ago, the $ Index closed below the 60 SMA and yesterday it failed to regain it; today the 60SMA is at 79.31: stay short $ unless we get a Daily close above that number today.

Wed, 01/19/2011 - 14:19 | 887627 Turd Ferguson
Turd Ferguson's picture

Very good point, Frenchy.

Btw, with O'Bottom and Long Duk Dong starting their joint presser, it might be wise to watch the video of their last joint appearance:

Wed, 01/19/2011 - 14:35 | 887690 French Frog
French Frog's picture

Thanks TF, but due to copyright, the video can only be viewed in the US, so us europeans can't see it

Wed, 01/19/2011 - 16:01 | 887927 Pladizow
Pladizow's picture

Is your avatar meant to make homosexuals dizzy?

Wed, 01/19/2011 - 16:49 | 888099 French Frog
French Frog's picture

you tell me lol

Wed, 01/19/2011 - 21:35 | 888941 Armchair Bear
Armchair Bear's picture


Wed, 01/19/2011 - 13:18 | 887418 jdrose1985
jdrose1985's picture

Why the sense of urgency?

The dollar bears have been living on the edge of their seats for years now.

Wed, 01/19/2011 - 13:21 | 887431 Turd Ferguson
Turd Ferguson's picture

Look at the chart on the post and you'll see why.

I'd simply post it here but I'm not allowed...which is why I started my blog in the first place.

Wed, 01/19/2011 - 14:00 | 887568 thetruth
thetruth's picture

Turd, my workplace has suddenly blocked your website for the first time today.  Would you mind pasting the textual portion of your post for people right here on ZH?



Wed, 01/19/2011 - 14:03 | 887581 Turd Ferguson
Turd Ferguson's picture

Do you work at JPM or an affiliate???

Here you go:

"At 78.44 on 11/21/10, suddenly the dreaded PIIG story re-emerged to give the USDX some strength. At the same level today, don't be surprised if Long Duk Dong and O'Bottom issue some type of "joint statement" that gives the buck a boost. If they don't, and 78.44 fails, look out below! We'll see 150 basis points come out real fast and a move to 77 will certainly provide the inspiration for solid bids in the PMs, all the way back up over 1400 and 30.

Wed, 01/19/2011 - 14:12 | 887604 thetruth
thetruth's picture

Thanks, Turd.


And no I don't, but thanks for the insult!  Hahaha


Would like to buy back in on gold and silver soon

Wed, 01/19/2011 - 14:15 | 887614 Turd Ferguson
Turd Ferguson's picture

Your moment to buy again is drawing near. Read this:

Wed, 01/19/2011 - 14:23 | 887643 thetruth
thetruth's picture

looks promising.  maybe will pull the trigger if still holding up in off hours

Wed, 01/19/2011 - 13:20 | 887435 NOTW777
NOTW777's picture

support @ 79 is gone unless some invisible hand saves it;

they are holding PMs under water like a beach ball as the dollar dives

Wed, 01/19/2011 - 13:29 | 887466 erik
erik's picture

Interestingly, the stock market is not getting a bid even though the USD is weak, and perhaps more importantly neither is copper.

Wed, 01/19/2011 - 14:13 | 887609 HarryWanger
HarryWanger's picture

It's catching a bid now. SPX will close -2 to flat. You should know the game by now. Run it down and buy the dip. Hasn't changed in weeks.

Wed, 01/19/2011 - 14:18 | 887625 SheepDog-One
SheepDog-One's picture

Urinal cake slinger.

Wed, 01/19/2011 - 14:29 | 887658 erik
erik's picture

I don't recall saying that dip buyers wouldn't show up.

SPY touched its 10 day moving average and found a bid so far.  I expect much more out of the dip buyers though.  They seem to be slow on the uptake today.  I doubt they will buy it back to even today, but they should have it back to even by tomorrow given recent track record.  Copper isn't interested though so far.

Wed, 01/19/2011 - 15:03 | 887773 mule65
mule65's picture

Not so much SPX and Nasdaq.  Pain at the pump is back.

Wed, 01/19/2011 - 17:54 | 888427 LooseLee
LooseLee's picture

Sorry USSA Minister of Propaganda. Didn't quite work out that way. Looks like a correction is imminent. Just when you buy into the bullshit it turns on you. Buying the dip on equities based on consumption in the USA may proved to be this decade's worst trade! Profligate consumerism (the USA) will be the death of our economy. Those who propagate the deception and outright lies of the MM and 'official' mouthpieces will be those with a bullseye on their forehead when boobusamericanus finally wakes up. Harry, have you looked in the mirror lately?

Wed, 01/19/2011 - 13:47 | 887523 SheepDog-One
SheepDog-One's picture

Thanks Turd. Its a shame Robo has chart posting privileges here and you dont!

Wed, 01/19/2011 - 14:16 | 887616 Turd Ferguson
Turd Ferguson's picture

Maybe if I change my avatar...

Wed, 01/19/2011 - 16:03 | 887931 Pladizow
Pladizow's picture

Can you be polished?

Wed, 01/19/2011 - 14:19 | 887629 Tense INDIAN
Tense INDIAN's picture

i so dearly want the dollar to come down

Wed, 01/19/2011 - 15:29 | 887851 Orly
Orly's picture

Sell EURCHF to 1.22.

Wed, 01/19/2011 - 17:12 | 888028 AccreditedEYE
AccreditedEYE's picture

Hey Orly, sorry for the OT, but are you still holding/buying UNG? What do you make of its inverse correlation to equities? 

Wed, 01/19/2011 - 13:18 | 887429 Oh regional Indian
Oh regional Indian's picture

Spot on nic. hard commodities, soft commodities, edible commodities, that is the complex complex to watch. Oh, and flamable commodities too, maybe especially today.

Oil is the biggest lever and completely controlled, Opec, Shmopec.

Any ideas for what will happen when Oil goes back to 140 in short order (Hormuz, Bab al Arab incident waiting to happen).

On oil this grew and on oil it will die. And good riddance. The industrial economy that is.


Wed, 01/19/2011 - 13:31 | 887472 Cdad
Cdad's picture

All but one of the signals [L. Blankfein Wildest Dreams Park] is suggesting the USD Stud man is about to have his way with everything alive. 

I hope it is the case because that would end the DUMBEST EQUITY RALLY IN THE HISTORY OF THE WORLD!  Although we are just sitting here after our morning sell off...the sell programs on underlying issues are continuing to surge through the equity market, again and again...selling without moving things through the miracle of HFT.  So the equity market is confirming its fear that the morally depraved USD stud man just might show up all ready to make adult movies.

The Euro will also TELL the move of late there is so laughable that I sometimes have a hard time typing...especially when I hear that Goldman is upgrading that currency.

Throw on top of the entire burning heap of rubbish...the action on the shares of the world's largest zombie maker...which you would think would be heading for the criminal syndicate Wall Street bankers try to change the narrative that S. Jobs is not really all that most folk are guessing now that he will not be returning to that company....ummmm...ever.

Wed, 01/19/2011 - 13:34 | 887481 JW n FL
JW n FL's picture

Dearest Tonto,


Why do you think that minus the polite people who are printing into infinitim... that your personal quality of life will be the better for?

please explain minus all the sheepeople purchasing cheaply made goods from across the indian ocean, why that will be good for the 3rd world / brics...

please explain what you view your quality of life as minus all these polite liars trying to help you...

please explain if you have any concern for regional rulers breaking out minus some type of real / fake sense of law binding the sheepeople together? maybe you have never been close enough to a war lord to comprehend that question?

if you resort to personal attacks and skip the questions, I will of course understand.

Wed, 01/19/2011 - 13:47 | 887521 Oh regional Indian
Oh regional Indian's picture

Your words: Dearest Tonto


if you resort to personal attacks and skip the questions, I will of course understand

Good to see you have a sense of humor.

Enough said.


Wed, 01/19/2011 - 13:57 | 887558 JW n FL
JW n FL's picture

weakling, you cant handle a chat room... but you want the lights to go out... point taken.

Wed, 01/19/2011 - 13:21 | 887443 Cyan Lite
Cyan Lite's picture

USL, bitchez

Wed, 01/19/2011 - 13:23 | 887447 topcallingtroll
topcallingtroll's picture

I know how it ends. St vincent.mccrudden vanquishes the evil midget demon GG .and his 46 princes of darkness. Have faith people. This is all part of His plan. In a thousand years his martyrdom will.have changed the world and children will sing songs to him in again....maybe not.

Wed, 01/19/2011 - 13:29 | 887467 alter ego
alter ego's picture

No to be religious or out of the subject, but as an illustration for the people that believe that the market Bears are like the boy who cried wolf.

Here is some wisdom:

“For as in the days before the flood, they were eating and drinking, marrying and giving in marriage, until the day that Noah entered the ark,” (Gen.6-7).

We all know what happened after Noah entered the Ark.

Wed, 01/19/2011 - 14:00 | 887570 MachoMan
MachoMan's picture

Noah was a pig fucker

Wed, 01/19/2011 - 14:05 | 887585 sockcutter moto...
sockcutter motorforker's picture

might as well be when you have 2 to choose from

Wed, 01/19/2011 - 14:17 | 887624 weinerdog43
weinerdog43's picture

Lloyd Blankfein and Bob Rubin?

Wed, 01/19/2011 - 22:03 | 889025 sockcutter moto...
sockcutter motorforker's picture

i mean you can only choose one. hard choice now, isnt it?

Wed, 01/19/2011 - 15:15 | 887808 Watauga
Watauga's picture

I don't understand this comment on any level.

Thu, 01/20/2011 - 12:25 | 890107 MachoMan
MachoMan's picture

noah had an erection and pulled aside his robe and inserted his erection into a pig's bottom... I presume english is your first language?

PS, he also had a helper monkey that tagged the pigs that did not kick.

Wed, 01/19/2011 - 17:57 | 888435 LooseLee
LooseLee's picture

Sounds like something wanker and robo would do..

Wed, 01/19/2011 - 13:36 | 887487 Cash_is_Trash
Cash_is_Trash's picture

Man the Epsons, HPs, Xerox's, Lexmarks and Kyoceras!

It's gonna be a print to the finish!

Wed, 01/19/2011 - 13:38 | 887493 Quinvarius
Quinvarius's picture

The Fed and the bankers act only in their own interests.  They feel what is best for them is also best for the country in the long run.  They will pound the stock market into the dust if they think the dollar is going to far down.  They actualy believe the dollar is a safe haven and people will flock to it if the markets go bad.

Wed, 01/19/2011 - 13:49 | 887531 gwar5
gwar5's picture

As long as the West is as broke as it is, nothing has changed, Ponzi in effect.

US is worse off because we are pussies and used to the reserve currency status.

PM's for the long haul and store of value. Buy the F'ing dips.

Economic emergencies: nationalizations of miners possible

Wed, 01/19/2011 - 13:49 | 887533 max2205
max2205's picture

Buy the dipper's are wondering if this is the dip to buy. Lol

Wed, 01/19/2011 - 14:13 | 887612 HarryWanger
HarryWanger's picture

1282 seems to be the SPX trigger for the dip buyers. Bounced quickly off that level.

Wed, 01/19/2011 - 14:17 | 887623 SheepDog-One
SheepDog-One's picture

Oh, thats where the dip buyer Bernanke bought? You fuktard.

Wed, 01/19/2011 - 14:25 | 887652 max2205
max2205's picture

I can only imagine what Ben and sacks will do when we close red for the year this week. All bankers replaced by shiny new robots. They don't require bonuses

Thu, 01/20/2011 - 01:25 | 889288 Moonrajah
Moonrajah's picture

All top banksters are already robots. They just have human flesh, is all.

Wed, 01/19/2011 - 15:53 | 887912 SheepDog-One
SheepDog-One's picture

Guess again Harry!

Wed, 01/19/2011 - 13:52 | 887540 Rogerwilco
Rogerwilco's picture

The Eurozone trouble turd will soon float to the top, and the DX will rally. Throw in some trouble in the Middle Kingdom's faux miracle, and it will rally hard.

Wed, 01/19/2011 - 13:55 | 887553 Waffen
Waffen's picture

can anyone interpret this for the laymen?

Wed, 01/19/2011 - 14:25 | 887650 Wynn
Wynn's picture

"I suggest you panic" is as good as any

Wed, 01/19/2011 - 13:59 | 887566 Caviar Emptor
Caviar Emptor's picture

Imbalances can go on for longer than anyone could have foretold. However, when they reach a tipping point, things change fast even violently until a new equilibrium is reached. 

Every turn of the biflation rack is pulling US consumers apart, caught between inflation and deflation. That can go on for a while, but not forever. That's because the main gauge that I follow, which is the cost of a traditional middle class existence, keeps increasing just as the middle class's income and assets are dwindling. That kind of dislocation won't end happily or with a whimper. 

US dollar is in a precarious position, as usual. Gold will resume it's wining ways shortly. 

Wed, 01/19/2011 - 14:33 | 887679 Salinger
Salinger's picture

"Every turn of the biflation rack"


now if only WilliamBanzai7 could create an image for that

Wed, 01/19/2011 - 14:00 | 887569 hugovanderbubble
hugovanderbubble's picture

+1 Excellent post , thx

Wed, 01/19/2011 - 14:05 | 887582 Clockwork Orange
Clockwork Orange's picture

Not sure how it ends, but THEY are getting ready.

HT ancient warrior

Wed, 01/19/2011 - 14:18 | 887626 Vagabond
Vagabond's picture

Troll, retard, or both.

Wed, 01/19/2011 - 22:13 | 889056 attst487
attst487's picture

What happens is when (classified) does (classified) then you must (classified) from flesh-eating (classified) and irradiated (classified).

Wed, 01/19/2011 - 14:22 | 887639 JW n FL
JW n FL's picture

********************************** " Zerohedge, a site for financial commentary, has posted a copy of the Dalrymple report. In it Mr. Dalrymple said he believed, among other things, that Gerova was “a repository for impaired, illiquid hedge fund assets, which are used for regulatory capital” and that it was hiding related-party transactions. The report also said that Gerova had “strong ties to the investment underworld,” including Westmoore Capital, which the Securities and Exchange Commission closed down in June, describing it as “Ponzi-like investment scheme.” The latter charge was also relayed by Neil Weinberg on his personal finance blog at Forbes before the Dalrymple report came out. On Tuesday, Gerova called the Dalrymple Finance report “a vehicle for a disinformation campaign orchestrated by Keith Dalrymple, a sometime securities analyst with a questionable regulatory background.” The company added that the report contained “materially false information and reaches a series of speculative and unsupported conclusions.” It did not elaborate. Mr. Dalrymple disclosed his short interest in Gerova in the report, and Gerova noted in its press release that short positions in its stock had doubled in the first half of December, when it announced two major deals." ************************************************************************************


Wed, 01/19/2011 - 20:53 | 888860 Don Birnam
Don Birnam's picture

"Investment underworld."

Don Calamari: Capo di tutti capi of the 'Street Syndicate.

Wed, 01/19/2011 - 14:19 | 887632 bunkermeatheadp...
bunkermeatheadprogeny's picture

Remember the hot chick in HS that lost her looks as she aged, but still kept the ego?


That's America now.

Wed, 01/19/2011 - 14:51 | 887743 thetruth
thetruth's picture

remember her?  we married her

Wed, 01/19/2011 - 19:22 | 888724 huggy_in_london
huggy_in_london's picture

hahahahaha, classic.... and true!!!

Wed, 01/19/2011 - 14:36 | 887693 Miramanee
Miramanee's picture

These two bears agree w/Nic:

Wed, 01/19/2011 - 16:21 | 887995 monopoly
monopoly's picture

I have so much cash here to get back into PMs and gold. Just a couple of shorts but man, if only I can call the gold turn. Heaven sent. At some point this crap will end and then, reality will set in. Timing.....grrrr.

Wed, 01/19/2011 - 21:51 | 888979 honestann
honestann's picture

My opinion.  I've been buying physical gold on dips for years, and perhaps delude myself into thinking I can feel the right times to buy.

My "buy alarm" is blaring right now, even though the latest pullback isn't very big (typical == 12%), and even though the chart looks worse than a long time.  I get the feeling "bad news" from munis, states, european countries, commodity prices, food riots and other events are just getting started in earnest, and soon far more big money will be running for physical gold and silver.

The main reason silver and gold are so wimpy lately is the "total win" for JPM at the CFTC... getting official permission to do anything whatsoever they wish to manipulate silver and gold... forever.

However, the "other side" of that story... the real, physical supply of real, physical silver and gold... is getting so difficult (like, "sorry, none available for who knows how long" from ever more suppliers), the silver and gold story are ready to begin their run very soon.

While prices might fiddle around doing not much of anything for a few more days, I doubt you're gonna find a much better entry point.  Personally, I'm "calling it" for me now, though for me that just means going from 95% in gold and silver to 99%.

Good luck... hope you get the exact bottom.  However, believe me, I no longer give a damn whether I bought at the exact bottom at $330 or $480 or $580 or $740 or $890 or $1160 or $1280 or $1355.  Really, after a while such worries are laughable.

Wed, 01/19/2011 - 19:33 | 888743 chump666
chump666's picture

There is an inflation fear trade coming up, but it might be inverse to expectations i.e stocks sell, USD buy.  It's all China, they could be at the tipping point inflation crash, even if the fudge their CPI data (out in hr or so).  China may have to 'crash' some of it's sectors, obviously housing, to try and stave of hyper-inflation lead from energy/food.

Commodities industrial could unwind hard, gold may correct on a HFT fear sell (ETF markets), copper correction etc

Thu, 01/20/2011 - 01:39 | 889300 Temporalist
Temporalist's picture

It's a big game of chicken on an open road with the two biggest economies driving Mack and Qingdao semis and neither will swerve; the head-on collision won't kill the drivers just the bystanders.

Do NOT follow this link or you will be banned from the site!